Ford Confronts the Deadliest Danger

Cyprus and the search for a Vice President might distract attention temporarily, but the Ford Administration knows quite well what is the deadliest danger that it and the nation face: inflation. The new President sought last week to assure the country of his determination to confront it, making economic policy the focus of his heavily applauded first speech to Congress. But his program as it emerged in the broadest of outlines could almost be called Nixonomics without Nixon: it contained little that had not been advocated by the previous Administration. Whether that signified a barrenness of ideas or a realistic appreciation that inflation cannot be conquered except by dogged persistence in pursuing painful policies, only time and future presidential action will make clear.

What is altogether too clear is that events will give the President and his advisers, old and new, no leisure in which to think out the details of economic strategy. Dismal crop forecasts last week made plain that food-price inflation is gathering speed again. A union plan to shut down the nation's coal mines this week underlined boiling labor unrest. The stock market, reflecting investor skepticism that anything much would change, plunged to new lows. The success or failure of Ford's presidency will be judged largely by whether in the months ahead he can produce a different kind of economic news.

Target: "Public Enemy No. 1"

Opening his attack on inflation last week, President Ford came on like a curious mixture of two radio programs from the 1940s: Gang Busters and Fibber McGee and Molly. In the best Gang Busters fashion, he told cheering Congressmen that he considered inflation "public enemy No. 1" and pledged a resolute fight against it. Yet what he disclosed of his arsenal of weaponry for the battle seemed a Fibber McGee closet crowded with familiar ideas that have been tried, or at least noisily advocated, before.

In his speech to Congress, Ford made three specific economic proposals, all of which had been embraced by President Nixon before his resignation:

1) He dedicated himself to what Nixon aides called "the oldtime religion" of budget cutting by announcing that he had told White House staffers and Cabinet officers "to make fiscal restraint their first order of business" and flatly promising to recommend a balanced budget for fiscal 1976 (the official estimates for fiscal 1975, now in its second month, project a deficit of $11 billion).

2) He asked Congress to resurrect by Labor Day the Cost of Living Council, a Government agency that once administered wage-price controls but died on June 30, two months after the controls. Ford's COLC--like one that Nixon proposed in his last weeks--would be empowered to monitor price and wage increases and officially decry those that seem excessive, but it would not be able to order those rises rolled back or even delayed.

3) He promised to call an "economic summit" of top Government officials, corporate executives, bankers, labor leaders and private economists to seek agreement for a concerted attack on inflation--and pledged to preside over its sessions in person. Administration officials later suggested that the meeting might be televised and named Sept. 15 as the earliest date on which the "summit" could be held.

That hardly adds up yet to a comprehensive program, which of course it would be unfair to expect of Ford in his first week. The proposal for an economic summit, in particular, seemed designed to convey an impression of action, openness to ideas and determination to unite the nation against inflation rather than to yield any specific results. Even Administration officials do not expect the summit to turn up any thoughts that have not already been aired.

Still, there were signs that even if the ideas are old, they will be pushed with a new vigor. A tight budget and a tight monetary policy, to be pursued by the independent Federal Reserve with White House encouragement, will undoubtedly be the core of Ford's program, as they were at least in the rhetoric of Nixon's. But while Nixon gave no indication of where he wanted the budget ax to swing, Ford appears to have reached a hard and controversial decision: to resist deep cuts in the Pentagon budget and take the heaviest slices out of civilian programs.

In his speech to Congress, the President proclaimed opposition to "unwarranted" defense cuts and later expressed disappointment over reductions of $5.1 billion in military authorizations and $720 million in foreign aid proposed by Senate committees. On the other hand, after the House narrowly passed a bill providing $20.4 billion in federal aid to mass transit over the next six years, Ford urged amendments that would slash the total to $11 billion (congressional Democrats are proposing to meet him halfway by cutting the bill to $15.8 billion). Ford is expected to veto another measure, already passed by Congress, that raises education benefits for veterans, and to ask the lawmakers to repass the bill after several hundred million dollars have been cut from it. Some aides predict that Ford will veto every spending bill that provides more money than the Administration requested.

Some other parts of Ford's emerging program seemed to be a bit more than reinvigorated Nixonism. Jawboning, in the form of direct presidential criticism of specific price increases by specific companies, made a surprise reappearance. What jawboning existed under Nixon was mostly performed by lower officials rather than by the President. But Ford did not hesitate to take on General Motors, the world's biggest automaker and the largest employer in his home state of Michigan. On the new President's Inauguration Day, GM had announced a price boost of almost 10%, or about $500 a car, on 1975 models. Last week Ford pronounced himself "very disappointed" that GM would raise prices that much when business and labor should be practicing self-restraint and said that he hoped the move would not be "viewed as a signal by other auto companies or other industries."

The way the statement came to be made illustrated the extent to which the new Administration is feeling its way on economic policy. Press aides began wondering what they would say if reporters asked what Ford thought of the GM boost. Press Secretary J.F. terHorst got a presidential statement approved by Ford and issued it. No one seems to have figured out what White House pressure, if any, should be applied in the event GM doesn't back off from its price increase, and the whole issue of how much jawboning there should be under what conditions by the new Administration is still being debated by Ford's advisers. The consensus seems to be that any further jawboning should be done by a revived Cost of Living Council, not by the President.

The incident, however, did illustrate the impressive public support that Ford can command for tough anti-inflationary action. It drew praise from an un expected source; the National Automobile Dealers Association went on record as strongly backing Ford's "sharp disapproval" of GM's increase. James Gilmore, owner of Cadillac and Pontiac dealerships in Kalamazoo, Mich., and sponsor of Champion Race Driver A.J. Foyt, wrote to GM President Edward Cole complaining that "you're doing a great disservice to your dealers, who must face public criticism for such enormous increases."

Labor Detente. Ford moved to solidify his backing in another quarter by re-establishing a long broken communications link between the White House and Big Labor, whose cooperation will be vital to any anti-inflation campaign. He invited AFL-CIO President George Meany to the White House for a 45-minute chat that terHorst called "very friendly and very constructive." Meany was once friendly with Nixon but later turned into a bitter critic; he had not been in the White House for more than a year. Ford described Meany as a "great labor leader," although Meany's organization had rated Ford's congressional voting record as almost 100% wrong on matters of interest to unions. Later in the week the President conferred with Teamsters President Frank Fitzsimmons, who suggested to Ford that the nation should be "shocked back into reality" by a complete freeze on all prices and wages. Ford, said the union leader, had no comment.

Whether Ford, as his economic program is thought out and unfolds, can continue to effect such reconciliations is anybody's guess. Parts of it will be bitter medicine; fiscal and monetary restraint will undoubtedly cause unemployment to rise above the present 5.3%. But for now, Ford has the nation in a mood to go along with almost anything he wants to try. As New York Republican Congressman Barber Conable puts it, "It's kind of like taking castor oil. Nobody enjoys it. But I suspect that Jerry is going to be more able to administer it than most people."

A Bumper Year--For Prices

Nothing has hurt the U.S. consumer more in the past three years than wildfire food-price inflation. Last week what little hope remained that it would be eased by bumper crops this year vanished. On the fourth day of the Ford Administration, the Department of Agriculture released new crop forecasts that seemed to confirm the worst fears about the effects of the blistering drought that has gripped the Midwestern Farm Belt this summer after heavy spring rains spoiled the planting season (TIME, Aug. 12).

The Department now figures that the U.S., and the vast world market that its farmers help feed, will have to make do with an American corn crop of only 4.96 billion bu.--12% less than last year's harvest and a startling 26% below the record production predicted earlier (see chart). The soybean crop will be down even lower: it is now projected to be 16% below last year's record output of 1.6 billion bu. and 15% under earlier estimates. The wheat harvest, estimated at 1.84 billion bu., will still top last year's, but by only 8% rather than the 27% predicted in forecasts back in the spring. Total U.S. production of all crops is now expected to drop back to the level of two years ago, about 6% below last year.

It is possible that these estimates are a bit too pessimistic. The rains have finally come to most of the Midwest, leading one weather forecaster in Des Moines, Iowa, to announce that the drought was over. If so, farmers might yet squeeze higher yields out of corn already planted. But most farm experts remain discouraged. "So much damage has already been done," says Billy Ray Gowdy, commissioner of agriculture in Oklahoma, where farmers are worried that there will not be enough rain for a good sorghum harvest and that the soil will be far too dry to plant a new crop of winter wheat.

Oddly, consumers could get some initial benefit from the drought. As the prices of corn and soybean feeds rise, farmers are bringing cattle, hogs and other livestock to market early, causing a temporary glut that could help to keep meat prices down--at first. By next winter or spring, though, that oversupply will be exhausted and meat prices probably will rise with a vengeance. There are some signs, too, of a revival of the panicky export buying that in the past has done much to push up U.S. food prices. Foreign buying so far has been no more than moderate, but enterprising Japanese buyers have approached a number of farmers in downstate Illinois and offered to purchase soybeans for $1 a bushel above the going market price (currently $7.75).

Earnings Needed. The Ford Administration has one option that could ease the price crunch in the U.S: export controls that would in effect ration the amount of U.S. food made available to an increasingly hungry world. No proposal for such controls has yet been made to the President, but some Administration officials favor them. Secretary of Agriculture Earl Butz is opposed; he argues persuasively that controls would sabotage world trade by undermining confidence in the willingness of the U.S. to fulfill its agreements, and that the nation sorely needs large export earnings from farm goods to pay for imports of high-priced oil. His arguments were underscored last week by a report that the U.S. balance of payments, according to one measure, swung from a $1 billion surplus in the first quarter to a $4.5 billion deficit in the second. But Butz is a strong Nixon man who is widely expected to leave the Administration by Christmas--and Ford is described by some friends as a President who is likely to give the domestic economy first priority if its needs seem to clash with foreign policy interests.

Rumblings from The Mines

Much more than friendly chats between Gerald Ford and George Meany will be required to reduce the labor militancy that is producing a rash of strikes, and kiting wages up at an inflationary pace this year. A strong indication of labor's mood: the United Mine Workers, representing 110,000 members who dig 75% of the nation's soft coal, plans to shut down all unionized mines throughout this week. Officially, the closing is a five-day "memorial period," called by U.M.W. President Arnold Miller to commemorate the 100,000 coal miners killed on the job in this century. But Miller's intention is to give the nation a reminder of how seriously the U.M.W. could cripple segments of the economy, especially the steel and auto industries and electric utilities, if it calls a full-fledged strike when its three-year contract expires Nov. 12.

The shutdown will cost the U.S. 10 million to 12 million tons of coal production. It thus will reduce stockpiles at a time when the nation's energy supplies are still only in precarious balance with demand, and coal prices are shooting up. Some "spot" (immediate-delivery) coal has sold lately for as much as $45 a ton, v. $8 a year ago. Coal stockpiles now stand at 23 days for steel mills, 92 days for utilities and 39 days for industry generally. All are on the low side. Shrinking stockpiles will put pressure on the coal-mine owners, with whom Miller will begin the year's most important contract bargaining by the end of this month. Miller, who ousted the disgraced Tony Boyle in an election in 1972, has never negotiated a contract, and needs a fat pact to solidify his position. Among his desired concessions: a "substantial" wage hike, sick pay and a cost-of-living escalator clause, a pension raise and stricter safety regulations.

The U.M.W.'s unusual contract permits the "memorial" shutdown; in fact, it allows ten days for memorial closedowns during the life of the pact. Thus Miller can and probably will call another five-day "memorial" walkout in the middle of bargaining, and the nation could lose considerable coal output, even without an official strike. The coal industry's bargaining arm, the Bituminous Coal Operators Association, tried to talk the U.M.W. out of the shutdown, contending that it will cost miners and other employees $25 million in wages and $7 million in royalty payments to the union's welfare and retirement fund. Though the appeal failed, the figures indicate how costly a formal strike could be to the union, which has no strike contingency funds, as well as to the U.S.

The Stock Rally That Wasn't A stock market adage barnacled with age counsels investors to "buy on the rumor, sell on the news." Traders have followed it to the letter in the past two weeks and thereby made the explosive rally that was once expected to follow President Nixon's departure from office become Wall Street's non-event of the year. Shortly before Nixon's resignation, the Dow Jones industrial average did indeed rise nearly 50 points in a few days as investors bought on a plethora of rumors. But once the news broke, they started selling and drove the Dow down to a close last week of 732, the lowest in four years and about 30% below the alltime high of 1052 in January 1973.

No Stimulus. The reversal left analysts wondering: If the removal of un certainty about who will be in the White House could not ignite a lasting rally, what could? The answer: nothing immediately foreseeable. The market's drop reflects an unsentimental appreciation of the fact that the change in Administrations cannot quickly halt inflation. Referring to this summer's recently ended Midwest drought, which is sending up food prices, one broker quips: "What is he [President Ford] expected to do? Chew out the Lord for not providing rain?" Meanwhile, high interest rates continue to draw money out of stocks into such investments as Treasury notes and utility bonds, and trading is too light for many brokers to make a profit. Robert H.B. Baldwin, president of New York's Morgan Stanley & Co., predicts that "between 100 and 200 [brokerage] firms will merge or go out of business if short-term interest rates do not decline substantially, if the stock market does not improve markedly in price and volume, and if negotiated commissions [which permit investors to bar gain with brokers over what fee they will pay to buy stock] become effective May 1, 1975." The stocks of companies that produce commodities in short supply, including issues of oil, heavy chemical, metal and lumber concerns, may do well. But Harris, Upham & Co. now sees the Dow Jones average ranging no higher than 780 in the next six months. Its "worst case" assumption is a drop to 680, the lowest since July 1970.

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